Multivariate Hawkes process model of market participants behavior in the high frequency world

Sugato Chakravarty (), Kiseop Lee () and Yang Xi
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Sugato Chakravarty: Purdue University, West Lafayette, Indiana 47906, USA
Kiseop Lee: Purdue University, West Lafayette, Indiana 47906, USA
Yang Xi: Purdue University, West Lafayette, Indiana 47906, USA

International Journal of Financial Engineering (IJFE), 2021, vol. 08, issue 01, 1-15

Abstract: We propose a multivariate Hawkes process to model the interaction between the non-high frequency traders (NHFTs) behavior (Buy and sell) and high frequency traders (HFTs) behavior (Buy and sell). We apply our model to the intraday transaction data of the public sector banks stock in India, which is sampled from March 2012 to June 2012. We find that the mutually-exciting NHFT and HFT behaviors benefit the stocks, which have better average return above the average return of the public sector bank index. We further identify the granger causality relationship for mutually exciting dominating stocks that HFTs activities cause the activities of NHFTs. In other words, NHFTs are market followers in those stocks.

Keywords: High frequency trading; multivariate Hawkes process; granger causality (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2424786320500541

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